Moody's also confirms the ratings of two classes of notes issued by Canyon Capital 2006-1 Ltd.
New York, July 28, 2009 -- Moody's Investors Service announced today that it has downgraded the ratings
of the following notes issued by Canyon Capital 2006-1 Ltd:
U.S. $226,000,000 Class A-1 Senior
Floating Rate Notes due 2020, Downgraded to Aa2; previously
on 8/31/2006 Assigned Aaa;
U.S. $40,000,000 Class A-2 Senior
Variable Funding Floating Rate Notes due 2020, Downgraded to Aa2;
previously on 8/31/2006 Assigned Aaa;
U.S. $15,200,000 Class B Floating Rate
Notes due 2020, Downgraded to A2; previously on 3/4/2009 Aa2
Placed Under Review for Possible Downgrade;
U.S. $13,300,000 Class E Floating Rate
Notes due 2020, Downgraded to Caa3; previously on 3/17/2009
Downgraded to Caa2 and Placed Under Review for Possible Downgrade.
Additionally, Moody's has confirmed the ratings of the following
U.S. $22,800,000 Class C Floating Rate
Deferrable Notes due 2020, Confirmed at Ba1; previously on
3/17/2009 Downgraded to Ba1 and Placed Under Review for Possible Downgrade;
U.S. $22,800,000 Class D Floating Rate
Deferrable Notes due 2020, Confirmed at B1; previously on 3/17/2009
Downgraded to B1 and Placed Under Review for Possible Downgrade.
According to Moody's, the rating actions taken on the notes are
a result of credit deterioration of the underlying portfolio. The
actions also reflect Moody's revised assumptions with respect to default
probability, the treatment of ratings on "Review for Possible Downgrade"
or with a "Negative Outlook," and the calculation of the Diversity
Score. The revised assumptions that have been applied to all corporate
credits in the underlying portfolio are described in the press release
dated February 4, 2009, titled "Moody's updates key assumptions
for rating CLOs." Moody's analysis also reflects the expectation
that recoveries for high-yield corporate bonds and second lien
loans will be below their historical averages, consistent with Moody's
research (see Moody's Special Comment titled "Strong Loan Issuance in
Recent Years Signals Low Recovery Prospects for Loans and Bonds of Defaulted
U.S. Corporate Issuers," dated June 2008).
Moody's has also applied resecuritization stress factors to default probability
assumptions for structured finance asset collateral as described in the
press release titled "Moody's updates its key assumptions for rating structured
finance CDOs," published on December 11, 2008.
Credit deterioration of the collateral pool is observed through a decline
in the average credit rating (as measured by the weighted average rating
factor), an increase in the dollar amount of defaulted securities,
an increase in the proportion of securities from issuers rated Caa1 and
below, and failure of the Class D Overcollateralization Test and
the Class E Overcollateralization Test. The weighted average rating
factor has steadily increased over the last year and is currently 3074
versus a test level of 2750 as of the last trustee report, dated
July 9, 2009. Based on the same report, defaulted securities
total about $15.9 million, accounting for roughly
4.3% of the collateral balance, and securities rated
Caa1 or lower make up approximately 20% of the underlying portfolio.
Additionally, interest payments on the Class E Notes are presently
being deferred as a result of the failure of the Class D Overcollateralization
Test. Interest proceeds are diverted to pay the principal balance
of the Class A1 and Class A2 Notes as a result of this test failure.
Moody's also assessed the collateral pool's elevated concentration risk
in a small number of obligors and industries. This includes a significant
concentration in debt obligations of companies in the banking, finance,
real estate, and insurance industries, which Moody's views
to be more strongly correlated in the current market environment.
Moody's also observes that the transaction is exposed to mezzanine and
junior CLO tranches in the underlying portfolio. The majority of
these CLO tranches are currently assigned low speculative-grade
ratings and carry depressed market valuations that may herald poor recovery
prospects in the event of default. Additionally, Moody's
noted that the portfolio includes a material concentration in CLO securities
that are issued by affiliates of the collateral manager, which Moody's
views as potentially exposing the notes to additional correlation risk.
Due to the impact of all aforementioned stresses, key model inputs
used by Moody's in its analysis, such as par, weighted average
rating factor, and weighted average recovery rate, may be
different from the trustee's reported numbers.
Canyon Capital 2006-1 Ltd, issued on August 16, 2006,
is a collateralized loan obligation backed primarily by a portfolio of
senior secured loans.
The principal methodology used in rating and monitoring the transaction
is described in the following publication, which can be found at
www.moodys.com in the Credit Policy & Methodologies
directory, in the Rating Methodologies subdirectory:
Moody's Approach to Rating Collateralized Loan Obligations (December 31,
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Credit Policy & Methodologies
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. All information available to rating committees,
including macroeconomic forecasts, input from other Moody's analytical
groups, market factors, and judgments regarding the nature
and severity of credit stress on the transactions, may influence
the final rating decision.
Structured Finance Group
Moody's Investors Service
Moody's downgrades the ratings of four classes of notes issued by Canyon Capital 2006-1 Ltd.
Structured Finance Group
Moody's Investors Service